Right To Renew Business Leases

Vacant Possession

A commercial property landlord who wants to prevent their tenant from having the right to a new lease once their term has ended must ensure that the tenant enters into an exclusion agreement.

The Landlord and Tenant Act 1954 sets out the procedure for this (section 38(A)). As long as the landlord follows this, they will usually be able to obtain vacant possession of the property at the end of the lease.

It is, however, vital that the tenancy should be granted “for a term of years certain” – this is to make sure that the lease is excluded from the protective provisions of the 1954 Act.

Newham Borough Council v Thomas Van Staden [2008]

The case of Newham Borough Council v Thomas Van Staden [2008] involved a situation where the Council let business premises to a tenant on a short-term lease, outside of the provisions of the Act (sections 24-28). This meant therefore that the denied was denied the right at the end of their term to ask for a new lease.

It was necessary at that time to get an order from the Court in order to exclude the lease from the relevant provisions of the Act, which was done and the lease was signed. The term however was set to expire on 28th September 2004 but was to include any previous holding over or extension of it. The tenant continued to occupy the property after the term ended. The Court of Appeal had to decide if the tenancy continued under the provisions of the 1954 Act.

Additional Wording

As the additional wording ‘after the expiry date of the term’ had been included, it was held that despite the Court order, the lease had never been excluded from sections 24 to 28 of the 1954 Act, and the tenant, therefore, had a contractual tenancy. The Landlord (the Council) was therefore not entitled to possession of the property. This judgment remains valid, even though Court orders are no longer required.

The additional wording was included to avoid what happened in the case of City of London Corporation v Fell [1993], which found that a former tenant or guarantor of a lease had no liability for any rents due after the contractual term had expired, unless such additional words had been included. So while a landlord may end up with a tenant he would rather not keep, he may now be able to insist that existing guarantors and former tenants join in the new lease and become liable for the rent and other covenants. If there is no agreement between the parties, section 35 of the Act gives the Court the power to decide whether to release a former tenant or guarantor from any liability under a lease or not.

The Court must take into account all relevant circumstances, including the Landlord and Tenant (Covenants) Act 1995, which after the lease has been assigned twice in effect releases a former tenant from his obligations absolutely.

If a tenant has been assigned to a third party and he then applies for a new lease under the 1954 Act, the Court could be asked to make the original former tenant a guarantor of the new lease until the existing tenant has assigned it to a third party.

Van Staden Lease

Landlords with a Van Staden lease may now have a stronger tenant’s covenant as they have more parties to claim rent arrears from, therefore increasing the value of the lease.

Landlords can therefore look to more parties than are usually available following the amending provisions of the 1995 Act. It is likely that many of these leases exist and they may not be totally negative for landlords wanting possession of their properties.

How can we help?

If you require any advice in relation to the subjects discussed in this article, please do not hesitate to contact a member of our expert Commercial Property team in Derby, Leicester or Nottingham on 0800 024 1976 or via our online enquiry form.

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